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Thursday, November 13, 2008

With economic uncertainty looming, governments are faced with hard decisions on how best to stimulate the country's economy. Although Ottawa is believed to be somewhat insulated thanks to the federal government, there is still some degree of uneasiness. So what is best to 'prime the pump', so to speak? Well, according to a study done by economic forecasting firm Informetrica Inc. for the Federation of Canadian Municipalities, the best way to generate new jobs is infrastructure spending, rather than tax cuts. As published in the Toronto Star:

The study, done for the Federation of Canadian Municipalities by the economic forecasting firm Informetrica Ltd., has found that government spending of $1 billion on roads, bridges and water mains provides twice as much economic stimulus as a tax cut.

Specifically, the study's authors estimate that $1 billion spent on infrastructure projects would create 11,500 jobs in the first full year. The same amount dispensed in the form of a personal tax cut would net just 5,700 jobs. Why? Given a tax break, many Canadians would simply save the money to weather hard times. Others might spend it on imported goods, creating jobs elsewhere.

By contrast, spending tax dollars on upgrading this country's crumbling infrastructure would provide direct employment to tens of thousands, especially in the construction sector. And the badly needed new roads, transit systems and other public facilities would boost our long-term economic productivity.

With the City of Ottawa poised to request millions of dollars in funding for its recently-approved transit plan, both federal and provincial governments have an opportunity to invest in the city's infrastructure and recharge the economy, as well. And given some recent expressions of cautious optimism by some politicians, we can be cautiously optimistic, as well.